MARKET WATCH: Crude prices sag as rally fails

HOUSTON, Dec. 11 -- Crude prices tried to rally but failed to break the $90/bbl barrier Dec. 10 ahead of the Dec. 11 meeting of the Federal Open Market Committee, the policy-making arm of the Federal Reserve Bank.

The Federal Reserve is widely expected to lower its key 4.5% rate by at least a quarter of a percentage point at that meeting to provide relief to the troubled US housing and credit markets.

"The first day of the week for [New York trading for] West Texas Intermediate was spent in exactly the same pattern as the whole of last week: trying to break $90/bbl and not making it and then trying to break $87/bbl and not making it. WTI for now is congesting without any direction, and the lack of growth in open interest is a further illustration of the missing conviction," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Analysts in the Houston office of Raymond James & Associates Inc. reported crude prices were up in premarket trading Dec. 12 on news of two Midwest oil pipeline shut-ins. "Enbridge Inc. was forced to shut in each of its 125,000 b/d Ozark and Spearhead pipelines (Cushing, Okla., to Illinois) and Magellan Midstream Partners LP closed its 115,000 b/d Osage pipeline (Cushing to Kansas) due to power outages associated with extreme weather conditions," they said.

Meanwhile, freight rates for very large crude carriers between the Arabian Gulf and Japan "are making further new highs and Saudi Arabia is maintaining for January, as in December, full contractual volume to Asian customers," Jakob said. "US crude imports are again disrupted by fog in the Houston Ship Channel and combined with the voluntary end-of-year vessel delays for the tax declaration is likely to induce further crude oil draws in the US gulf area in the last Department of Energy reports of the year," he said.

Iran and the US will meet Dec. 18 over security in Iraq. "But the US administration is still trying to push for a new round of sanctions on Iran before the start of the New Year when five new countries (including Libya) join the UN Security Council for the nonpermanent countries rotation," said Jakob.

Energy pricesThe January crude contract for US light, sweet crudes climbed as high as $89.80/bbl during intraday trading before closing at $87.86/bbl, down 42¢ for Dec. 10 on the New York Mercantile Exchange. The February contract lost 38¢ to $87.77/bbl. On the US spot market, WTI at Cushing was down 42¢ to $87.87/bbl. The January heating oil contract fell 2.73¢ to $2.48/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) decreased 1.89¢ to $2.25/gal.

The January natural gas contract fell 12.3¢ to $7.03/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 10.5¢ to $6.97/MMbtu.

In London, the January IPE contract for North Sea Brent lost 60¢ to $88.04/bbl. Gas oil for December picked up $4.25 to $788.50/tonne.

The average price of the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes fell $1.09 to $84.19/bbl on Dec. 10.